Internal Revenue Service Department of the Treasury
Washington, D.C. 20224
Person to Contact:
Laura B. Warshawsky, Esq.
Partnership Valuations, Inc. Telephone Number:
Annapolis, Maryland 21404
Refer Reply to:
Date: February 24, 1993
This is in response to your letter to Martin Slate , Director of the Employee
Plans Technical and Actuarial Division, dated December 24, 1992, in which you
requested general information regarding valuation of assets in Individual
Retirement Accounts and Individual Retirement Annuities ("IRAs"). In
your letter, you posed the following questions: (1) Is an IRA required to value
its assets on an annual basis? (2) Is an IRA required to value "hard to
value" assets (e.g. partnerships, closely-held stock, collectibles, etc.)
as well as exchange-traded securities? (3) Are non-traded asset value standards
the same for IRAs as for defined benefit ("DB") plans and defined
contribution ("DC") plans? (4) Who is responsible for insuring an
IRAs assets are properly valued? (5) Can a fiduciary evade its valuation
responsibilities by having the client sign a release, indemnification or other
Section 408(i) of the Internal Revenue Code of 1986 (the "Code")
requires the trustee of an individual retirement account and the issuer of an
endowment contract or an individual retirement annuity to make certain reports
regarding such account, contract, or annuity to the Secretary of the Treasury
and to the individual for whom such account, contract or annuity is maintained.
Section 408(i) of the Code gives the Secretary authority to prescribe the
manner of providing such reports and to determine the information required to
Section 1.408-5 of the Income Tax Regulations provides that the trustee of an
individual retirement account or the issuer of an individual retirement annuity
shall make annual calendar year reports concerning the status of the account or
the annuity. The information required in the annual reports by the trustees and
issuers of IRAs includes: the amount of contributions, the amount of
distributions, the amount of the premium paid for an endowment contract
allocable to the cost of life insurance, the name and address of the trustee or
issuer, and such other information as the Commissioner of Internal Revenue may
Internal Revenue Service Form 5498, Individual Retirement Arrangement
Information, is the prescribed form for satisfying the annual reporting
requirements of section 408(i) of the Code and the regulations thereunder. The
instructions to Form 5498 require the trustee or issuer to report the fair
market value of the IRA account as of December 31 of each year.
In response to your questions, first, based on the fact that the Internal
Revenue Service (the "Service) requires that the fair market value of the
assets as of December 31 be reported on Form 5498, an IRA is required to value
its assets on an annual basis. Similarly, the requirement that fair market
value be determined annually for purposes of Form 5498 necessitates the
valuation of all IRA assets, including "hard to value" assets.
With respect to your third question, Revenue Ruling 59-60,
1959-1 C.B. 237, as modified by Revenue Ruling 65-193,
1965-2 C.B. 370, sets forth the proper approach to use to value
corporate stock for estate and gift tax purposes. Revenue Ruling 68-609,
1968-2 C.B. 327, states that the general approach, methods and
factors outlined in Revenue Ruling 59-60 are equally applicable to valuations
of corporate stock for income and other tax purposes. The general approach,
methods and factors also apply to valuations of corporate stock in IRAs.
With respect to your fourth question, the person responsible for insuring that
an IRAs assets are properly valued is the IRA trustee or issuer, because
under the Services reporting requirements that person is responsible for
reporting the correct fair market value of the assets.
Finally, the IRA trustee or issuer cannot evade valuation responsibility by
having the participant sign a release, indemnification or other instrument,
because the trustees or issuers responsibility for valuation
derives from the Services reporting requirements, which cannot be waived
by participant action.
We believe this information will be of assistance to you. This is not a ruling,
however, and may not be relied upon with respect to any specific transaction.